The federal government’s “malignant” move to suspend federal sales tax on many items. And checks may be sent to millions of Canadians this spring. This could be a factor that improves the growth outlook in 2025, economists said.
The plan, which has an estimated price tag of $6.3 billion, could put upward pressure on inflation, said Doug Porter, chief economist at the Bank of Montreal said in an interview on Thursday.
This is a very important move and it should be noted that it will not have a major impact on the high-profile GST opportunity. There is much more in (refund check),” he said.
Combined with the provincial government’s promised rebates in Ontario, Porter said the money could provide a significant boost to consumer income and spending early in the new year.
But he said the measures come at a time when inflation is falling. Policymakers are looking for ways to grow the economy instead of increasing the price. It is now moving in the same direction that the Bank of Canada is starting to change, he said. Porter said he still expects the central bank to continue cutting interest rates.
“They should take a slightly more cautious stance,” he said.
The Bank of Canada cut its key interest rate in October in half to 3.75%, moving it up to a higher-than-usual level as inflation stabilized. The government’s spending measures make it more likely that the central bank will continue to cut interest rates next quarter in its next interest rate announcement in December economists said Thursday.
Managing director and head of macro strategy at Desjardins, Royce Mendes said the sales tax exemption would mechanically reduce inflation. But the Bank of Canada is looking beyond that.
